Code to cut service charge conflicts
The British Property Federation has given its backing to new guidance intended to end conflicts over service charges.
Service charges have long been an area of conflict between commercial property tenants and their landlords and this code is an example of landlords being proactive in working with occupiers. It sends a clear message that the industry is keen to become more transparent and ensure higher levels of customer service.
The BPF is one of five leading commercial property bodies backing the new code of practice, developed by RICS, which aims to encourage transparency and communication in the commercial sector. Endorsed also by The British Retail Consortium, The British Council for Offices, the British Council of Shopping Centres and The Property Managers Association, the code has been upgraded to ‘official guidance’, requiring RICS members to adhere to best practice.
Although it will not affect existing leases but all parties will be expected to draft new leases in accordance with the best practice set out in the code.
Liz Peace, Chief Executive of the BPF (British Property Federation) added: “This is a potentially very useful guidance note written by people from all sides of the industry who deal with service charges in their daily lives. It is aimed just as much at landlords as at agents. Only when landlords take responsibility for the service standards their tenants receive will good practice be achieved.
The guidance offered is deliberately challenging and will, over a period of time, require significant changes to systems and practices, hence the need for a lead-in-period. Landlords, I am sure, will want to use the next 10 months wisely, to work with their agents to ensure the principles enshrined in the code are implemented in day to day practice.”
Director General of the British Retail Consortium, Kevin Hawkins said: “This new code is a landmark publication for the commercial property market. For too long, service charges have been the cause for tenant dissatisfaction and complaint. I am confident the recommendations contained in the guide will help deliver a step- change in the way service charges are managed in the UK’s high streets, retail parks and shopping centres. I commend this Code to all retailers and encourage landlords and their managing agents to give this document their every support”.
Chris Edwards, chairman of the RICS service charge steering group said: “RICS has developed this code to ensure that conflict between owners and occupiers will be a thing of the past. We are delighted that all the major commercial property bodies have participated in the development of this code. Upgrading the code to official guidance status offers enormous strides forward in improving the standard of service charge management. The code will open a relationship of trust and transparency between owners and occupiers and help to eradicate one of the most contentious areas of discord.”
Some of the key messages/principles the Code communicates are:
Management – service charge monies should be professionally managed with accountability to tenants for sums expended.
Transparency – by being transparent the service charge manager helps avoid suspicion and narrows the scope for problems.
Communication – continuous communication is essential. Both informing tenants and gaining their feedback.
Relative certainty – Tenants should have a good idea of what their service charge bill will be each year. Budgets should be produced in advance and reconciliations in good time after the service charge year. There will sometimes be significant variances in costs during the year, for example, because of higher energy costs, the Code promotes landlords’ prompt notification of these.
Nor for profit/not for loss – What this is trying to communicate is that there should no hidden mark-ups or charges on charges. The landlord/agents is allowed to charge for the management of the service charge and make profits on the services delivered, but the service charge itself is not a service that landlords should be making profits on.
Fair apportionment. The basis of how the service charge is divided up between different occupiers should be fair and open to scrutiny.
The Code stresses that at lease renewal, leases should (as far as is permitted by law) be brought up to the standard as set out in this Code.
